Deutsche Bank May Be Cut by S&P on Prospect of More Changes

(Bloomberg) -- Deutsche Bank AG may be downgraded by S&P Global Ratings, which said the German bank’s leadership change may signal a “prolonged, deepened or more costly restructuring” that could weigh on the bank’s credit rating.

The lender’s A- long-term rating is under review, S&P said in a statement late Thursday, while affirming its BBB- rating on the bank’s senior subordinated debt.

Last weekend, the lender named Christian Sewing chief executive officer, ending John Cryan’s reign after less than three years as questions mount about the future direction of Europe’s largest investment bank. S&P said it aims to decide whether to cut Deutsche Bank’s rating at the latest by May, when it expects more details of Sewing’s plans. The full benefits of any restructuring may not be realized until 2020, S&P said.

“We believe that Mr. Sewing and his new leadership team have the expertise and the intimate knowledge of the company and its various businesses to lead this long and complex task,” S&P said. “Therefore, this change could still act as a springboard for the bank to move more rapidly toward a sustainable, solidly profitable business model. However, in our view, it also implies that the bank may need to broaden the restructuring effort.”

Deutsche Bank said in a statement that it respected S&P’s decision, and noted that the review only applied to preferred or structured senior debt.

Deutsche Bank shares rose 1.2 percent at 9:43 a.m. in Frankfurt trading on Friday amid broader market gains. The stock is down 26 percent this year, the second-worst performer in the 42-member Bloomberg Europe 500 Banks and Financial Services Index.

Under Cryan, the company launched a broad look at what to do with its corporate and investment bank division, dubbed Project Colombo, people with knowledge of the plans have said. Some analysts have called for the bank to shrink the unit’s U.S. operations. Its business there “consumes material balance sheet resources” while suffering from “persistently low profitability,” JPMorgan Chase & Co.’s Kian Abouhossein and Amit Ranjan wrote in a note to clients last week.

“We continue to consider a well-performing CIB division as ultimately supporting Deutsche Bank’s creditworthiness,” S&P said. “However, the task is already complex, and we anticipate that the division would be the main focus of any further refinements to strategy.”

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